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More Data, More Money, More Clarity

In the month since my first Seeking Alpha article on the company, Provectus (NYSEMKT:PVCT) Pharmaceuticals: Small Cap, Huge Upside, there have been a number of very positive developments. While the Market is starting to recognize that the Company's value, the extent of the under-valuation is enough to make observers think that it is "too good to be true".

As investors we are much more confident and trusting when we buy something that is highly valued by as many people as possible. The Social Validation is comforting but, if anything, is more likely to signal a fair over generous valuation instead of an undervalued situation. Provectus is dramatically undervalued.

In this article, I will show you what the business value is, to an acquirer, because Provectus Management aims to sell the company. And I will present some evidence that may indicate there is a good chance that the end point may be sooner than most people think.


Provectus' stock has moved up as it has revealed more data on its versatile cancer drug, PV-10. The Phase II results indicate that the drug acts as chemical means of "knife-less surgery" eliminating the cancerous but sparing normal tissue. In the process, the data show that PV-10 acts to sensitize the patient's immune system to the cancer so that the patients' own defenses can attack and defeat cancerous tumors. This has been repeatedly demonstrated by purposely treating only some of the patient's tumors, and noting the significant effect on the lesions that had not been treated with PV-10.

In the latest trials report, at the European CanCer Organisation (ECCO) Meeting, the elderly Melanoma patients that were treated had already failed a median of six (6) other types of treatments. Given the longstanding safety record of the PV-10 drug, its short 30 minute half-life, and its ability to shrink or eliminate treated and untreated tumors and their metastases, there does not seem to be any downside to the drug's approval by the FDA.

There was one side effect though; Blistering of the tumor after it was injected. This is not really a "side"-effect, but is part of the intended effect to kill the cancer and stimulate the patient's own immune response to cancer cells. In fact, 91% of the people with blistering benefited from treatment, even though they all had failed to respond to all those prior treatments.

Even with the one-size-fits all treatment in the clinical trial "The take home message is that if you have injectable tumors and inject them with PV10 there is a one in two chance that you will achieve a clinical response, and for these patients an additional one in two chances that a non injected (bystander) lesion will respond," said Sanjiv Agarwala, the Principal Investigator of the study from St. Luke's Hospital Bethlehem, Pennsylvania."


Provectus, as a small research outfit is required by its auditors to maintain a substantial cash balance to qualify for "going concern" status. The company recently announced a partial closing of an ongoing money raise near the end of September. My calculations indicate that 10.4 million shares were issued for net proceeds of a bit over $7 million. That comes out to about 6 cents of cash per common share. The cash on hand at the end of the quarter should last long enough to avoid any more need to raise money in 2013. Provectus Management, who owns about 17% of the shares, plans on having licensing or joint venture payments in hand before the money runs out, in order to avoid further dilution, and the kind of market sell-off that brought the share price down from its recent high of $1.14 on September 20th. Provectus continued to have no debt at the end of Q3 on Sept. 30, 2013.

(Click to enlarge)


Following the latest scientific presentation, numerous publications indicated that "Provectus Pharmaceuticals believe they now have sufficient data to seek regulatory approval for PV-10."

My view is that Provectus is serious about seeking early FDA approval for very simple and logical reasons.

  1. PV-10 has been shown to eliminate, reduce and/or stop the progression of solid tumors
  2. PV-10 has been effective even when patients had failed to be helped by six or more different treatments
  3. There are no debilitating side-effects that risks harming even old and debilitated patients
  4. The overall safety profile of the drug has been demonstrated in over 100 years of medical use in people's eyes
  5. PV-10 can eliminate the need for surgery, radiation, and chemotherapy and selectively kills cancer cells, while not harming normal tissue
  6. The main side-effect, blistering of the tumor, is an indication that the drug is working and stimulating the body's immune system to better recognize cancer cells
  7. The demonstrated ability for local treatment to lead to an effect on remote, untreated "bystander" lesions indicates that an immune response is stimulated by PV-10 treatment and that even unidentified metastases in remote parts of the body may be eliminated

Provectus' experience in its Compassionate Use Program, where treatment is tailored to maximize the effect on the patient (instead of fitting a one-size fits all Trial Protocol) indicates that in actual clinical use, PV-10 is even more effective than in the clinical trials. This is so because all accessible lesions can be injected with PV-10, with greater amounts of PV-10, and more frequently.

The question for those familiar with the effects of PV-10 has become: "Why should cancer sufferers be denied the use of this effective and safe treatment any longer?"

To this end, Provectus has applied, or will shortly apply for accelerated approval of PV-10, with market entry in 2014 if it is granted. Without approval, the expectation is for marketing in 2016 .


Provectus Management has also made no secret of the fact that they plan to sell the company and do not plan on bringing their drugs to market by themselves. In fact, in the Wall Street Transcript interview, Peter Culpepper, COO and CFO asserted that, given the Market opportunity, he expects a deal to exceed the $2.9 Billion up-front payment by Celgene (NASDAQ:CELG) for Abraxis. In addition, he expects to get post-sale milestone payments with shareholders benefiting via a "contingency value right", as happened in the Abraxis deal.

It may sound unrealistic for the CFO of a company with a Market Value of less than $200 million to be expecting a buyout more than 1500% higher, although in the Biotech industry, this kind of ultimate return does happen. The research and Compassionate Use Program results are the reason that the CFO has the confidence to sound so bold. PV-10's effects on solid tumors is likely to allow it to address a huge market in a wide variety of cancers. Based upon Provectus' own Market, market share, and other data, I have analyzed these opportunities to find the numbers behind the confidence.

In the Table below, I have laid out the main assumptions underlying the Base Case Scenario. I start with the size of the market for each type of cancer and the expected dollar compound annual growth rate (CAGR). I then give the maximum market penetration assumed, reached after 3 years, and the year the marketing starts. I also give the discount factor, for each clinical indication. Note that uncertainty in efficacy and ultimate approval is accounted for in this yearly discount factor in the Net Present Value calculation. Once I calculated the net present value of the revenue for each type of cancer, I calculated the Gross Profit Margin by multiplying Revenue by 60%, given that Provectus has estimated cost of goods as 10% and marketing as 30% of revenue.



Est. Total Treatment 2013 market ($ million)

assumed CAGR

Max Market penetration (after 3 yrs.)

Expected Market entry

NPV Discount

NPV per share


$ 2,341





$ 6.33

Liver Cancer

$ 3,110





$ 5.90

Breast Cancer

$ 10,185





$ 11.07

Bladder Cancer

$ 648





$ 2.71

Non-Small Cell Lung Cancer

$ 5,954





$ 24.89

Pancreatic Cancer

$ 817





$ 3.38

Prostate Cancer

$ 3,636





$ 15.27

Renal Cancer

$ 1,324





$ 5.56

Small Cell Lung Cancer

$ 653





$ 2.84

Atopic Dermatitis

$ 1,892





$ 12.37


$ 3,022





$ 20.33

Base Case (NYSE:BC) Net Present Value (NYSE:NPV) of Gross Profit (60% of Revenue) per share =

$ 110.64

As you can see, the Net Present Value per share, of the gross profit, for each of the individual cancer indications far exceeds the current market value of Provectus shares ($0.875 as of the Oct. 4, 2013 close). Said another way … If PV-10 works for even one of these cancers, the stock is undervalued.

But perhaps you find it difficult to believe that the current discounted value of future Gross Profits, at $110.64, more than 125 times the current share price, is just another reason that Provectus is "too good to be true", like how PV-10 can kill cancer cells but leave healthy cells alone.

I have calculated some alternatives, to see how they come out. Perhaps I can find a way to downgrade the valuation to make people not automatically start to think "too good to be true". The first alternative scenario is one that PVCT Management is working on now; trying to get early approval for PV-10 so that it can start to treat people with Metastatic Melanoma and Liver Cancer, starting next year. If they manage to do this, besides saving a lot of people' lives, they will increase the Net Present Value of future Gross Profits for each share to $112.86.

To be pessimistic, let's assume that the company does not manage to obtain the up-front licensing fees it is looking for and has to sell another 30 million shares (at $1/share so it can operate for 2 years) before it is bought out. Increasing the share count brings the Net Present Value of future Gross Profits for each share to under $100, at $95.61.

Since that is also "too good to be true", even though it is as true as honest projections can be, let's load up on the negative assumptions. The Base Case includes 28 years, from 2014 through 2041. The patent protection runs out in 2031 and I have assumed a 50% decline in revenue when the patents run out. But let's assume instead that breakthroughs in new drugs happen and take all of PV-10s and PH-10 (the dermatology version of the drug) market, after only ½ the time I assumed in the Base Case. In this situation, there are no sales until 2016 and then there are only 12 years with revenue. This would bring the Net Present Value of future Gross Profits for each share to $85.10. The decline is minor because in Net Present Value computations, especially with discount values that are huge, as in the Base Case. Early revenues are much more valuable that ones that happen later.

If cutting the selling years in half leaves the result still "too good to be true", let's assume that PV-10 only gets approval for Melanoma and Liver cancer. Let's also assume that marketing only begins in 2016, and to make matters worse, a competitor brings out new drugs that steal PV-10's market only 12 years of sales. If we bend over backward to be skeptical about the general ability for PV-10 to be a useful treatment for a wide variety of solid tumors, we get the Net Present Value of future Gross Profits for each share down to only $5.68, a mere 6.5 time the current share price.


BC w/ Melanoma & Liver Cancer to Market in 2014, NPV of Gross Profit/share=

$ 112.86

BC w/ added 30,000,000 shares dilution NPV of Gross Profit per share =

$ 95.61

BC w/ half (14) years (w/ no revenue yr. 1 & 2) NPV Gross Profit/share =

$ 85.10

BC w/14 yrs, 1/2 the market penetration & only Melanoma & Liver Cancer: NPV Gross Profit=

$ 5.68

SHARE PRICE CLOSE October 4, 2013 =

$ 0.875

SHARE PRICE CLOSE Sept.4, 2013 =

$ 0.750

One Month Price Appreciation =



Time is of the essence for Provectus investors. Significant events could occur at any time.

Provectus Management has been actively traveling the globe to negotiate licenses, sale or joint ventures for rights to their dermatological version of PV-10 and to license PV-10 in Asia, where the interest is focused on liver cancer.

Provectus Management appear to have submitted, or are about to submit, applications under a variety of FDA programs in order to get immediate or fast track approval for PV-10 for multiple indications. Even though there is a partial Govt. shutdown, fee-supported programs, like those of the FDA, have not ceased. FDA turnaround times, for example with Breakthrough Drug designation, can be less than 60 days. It is very possible that an FDA ruling could be made soon; before the end of this year.

Provectus Management expects that, when the regulatory status of PV-10 is advanced, their opportunity to sell the company starts. If the FDA applies logic to the facts (effectiveness and safety), they will grant early approval for PV-10, at least for patients who would otherwise die, having exhausted the currently approved treatments. Stakeholders in Provectus believe that any FDA approval will put Provectus "in play", with the most likely acquirer being Pfizer, who has one of their Oncology Executives on the Provectus Advisory Board and as a co-author on a combination therapy patent application that involves PV-10.

Of course, it is always possible that new data will indicate PV-10 does not work as well as the results of the Phase II trials and the Compassionate Use Program indicates. The Net Present Value calculations use a generous discount factor because drug development is an inherently risky proposition. Despite the dramatic cures and the long-term safety data, FDA approval may be elusive, so Provectus is not a "conservative" investment. As I hope I demonstrated in this article, after the future revenues are discounted for the high risk, the current value of those future profits remain very high compared to the share price.

As soon as there is news that lowers that risk, the discount will decline significantly and abruptly; the share price soaring higher. Until that news comes out, relatively few investors will know about their opportunity to "do well" by owning PVCT.OB, while PV-10 "does good" for cancer sufferers and their families. The high potential value of PV-10 to major pharmaceutical companies in need of blockbuster drugs is currently ignored by the Market. I agree with Provectus Management that, with a bit more regulatory clarity, it becomes very likely the Market will no longer be able to remain oblivious.

Disclosure: I am long PVCT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. If I wasn't long this stock, very long, given the data I present in the article, I could not blame you for thinking that I did not believe my own facts. Although I am sharing my ongoing due diligence in this article, each investor should do their own due diligence before making investment decisions.